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What is the purpose of the paper by P. Eichholtz?
It studies the effectiveness of international real estate diversification relative to international diversification of stock & bond portfolios.
What is the main finding of the article by P. Eichholtz?
There is a significantly lower correlation between national real estate returns than between common stock or bond returns.
What is the main implication of the findings in the article by P. Eichholtz?
International diversification reduces the risk of a real estate portfolio more than that of common stock and bond portfolios.
How is the correlation between international property shares and (a) countries within the same continent and (b) countries on different continents?
(a) increasing (b) decreasing
To address the strategic decision of how best to allocate the investor's capital portfolio theory makes which 3 major contributions?
- It treats risk & return together in a comprehensive and integrated manner.
- It quantifies the investment decisions relevant implications of risk & return.
- Makes contributions at portfolio level.
What is the objection of the mean-variance portfolio theory?
The objection of the mean-variance portfolio theory is to maximize the expected return of a portfolio which is subject to a volatility constraint.
Name one of the most important ideas in portfolio theory.
The efficient frontier.
What is the efficient frontier?
The efficient frontier are all risk/return possibilities associated with the set of all possible efficient portfolios.
What is an efficient portfolio?
An efficient portfolio is one which only consist of combinations of asset classes that are not dominated.
Name 3 characteristics of the efficient frontier.
- Curved shape.
- Bending upward & leftward relative to a straight line.
- Running generally from the southwest toward the northeast.
Which portfolio on the efficient frontier an investor should hold depends on what factor?
His risk and return preference.
What is the two-fund theorem?
It describes that all investors will prefer combinations of the riskless asset and as single particular risky asset portfolio.
Name 3 ways in which the extension of the modern portfolio theory (MPT) by consideration of a riskless asset can be useful.
- It allows an alternative, intuitively appealing definition of optimal risky asset portfolio.
- It can help to avoid "silly" portfolio recommendations.
- It provides a framework for accommodating the use of leverage or short-term debt holdings in the portfolio.
Which two theories are mentioned in the chapter that try to explain the underinvestment by institutional investors in real estate?
- Real Estate Market "Friction".
- Long-Interval Expectations.
What is "Real Estate Market Friction"?
Direct investment in privately traded real estate assets face difficulties not present in investments in publicly traded securities.
- illiquid
- lumpy
- impossibly to take short positions